You have conducted some market research for style and size of products you want to use to launch your business. The market research has indicated the following sales price ranges will be optimal for your area depending on style of products you choose to sell:
?Collars
oWith pricing at $20 per collar, you can expect to sell 30 collars per day.
oWith pricing at $24 per collar, you can expect to sell 25 collars per day.
oWith pricing at $28 per collar, you can expect to sell 20 collars per day
?Leashes
oWith pricing at $22 per leash, you can expect to sell 28 leashes per day.
oWith pricing at $26 per leash, you can expect to sell 23 leashes per day.
oWith pricing at $30 per leash, you can expect to sell 18 leashes per day.
?Harnesses
oWith pricing at $25 per harness, you can expect to sell 25 harnesses per day.
oWith pricing at $30 per harness, you can expect to sell 22 harnesses per day.
oWith pricing at $35 per harness, you can expect to sell 20 harnesses per day.
Additionally, you will need to compare your break-even points for the following target profits for each area of your business to determine your prices:
?Collars
oBreak-even
o$300 target profit each month
o$500 target profit each month
?LeashesoBreak-even
o$400 target profit each month
o$600 target profit each month
?HarnessesoBreak-eveno$500 target profit each month
o$650 target profit each month
Remember that all break-even and target points must be in whole units (we cannot sell a partial unit). Round up when calculating partial units to ensure costs are covered. Excel tip – use ROUNDUP function
ACC 202 Milestone One: Operational Costs Data Appendix
You plan to open a small business for manufacturing pet collars, leashes, and harnesses. You have found
a workshop space you can use for sewing your products. After some research and planning, you have
estimates for the various operating costs for your business.
The total square footage for the sewing rooms is 1,500 square feet broken into three areas (500 square
feet each). You have taken out a loan for start-up costs, and the monthly payment is $550; it goes into
effect immediately and should be accounted for in your costs. You will also collect a modest salary for
the first year of $500 per month; remember to divide evenly among the services.
Salary and Hiring Data
• One collar maker, who will be paid $16.00 per hour and work 40 hours per week
• One leash maker, who will be paid $16.00 per hour and work 40 hours per week
• One harness maker, who will be paid $17.00 per hour and work 40 hours per week
• One receptionist, who will be paid $15.00 per hour and work 30 hours per week
Other Costs
• Rent: $750 per month; allocate based on square footage
• High-tensile strength nylon webbing—$12 per yard of webbing
o 3 collars per yard of webbing
o 2 leashes per yard of webbing
o 2 harnesses per yard of webbing
• Polyester/nylon ribbons—$9 per yard of ribbon
o 3 collars per yard of ribbon
o 2 leashes per yard of ribbon
o 2 harnesses per yard of ribbon
• Buckles made of cast hardware—$0.50 per buckle
o 4 buckles used per collar
o 3 buckles used per leash
o 8 buckles used per harness
• 3 industrial sewing machines at $3,300 each for a total of $9,900; depreciation is $165 per month (5year life, zero salvage value)
• Utilities and insurance: $600 per month; allocate based on square footage
• Scissors, thread, cording: $1,200
• Price tags: $250 for 2,500 ($0.10 each)
• Office supplies: $2,400 or $200 per month
• Other business equipment: $2,000
• Loan payment of $550 per month
• Salary drawn of $500 per month
1
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Assignment Information
ACC 202 Milestone One Guidelines and Rubric
Overview
Successful entrepreneurs understand all aspects of business, especially costs and costing systems. In the course project, you will assume the role of the owner of a small business and apply
managerial accounting principles to evaluate and manage costs related to your services within a costing system. In the first milestone of the project, you will determine and classify the costs
necessary for opening your business.
Scenario
You plan to open a business manufacturing collars, leashes, and harnesses for pets. To begin, you will manufacture these in a standard style and size with plans to expand your range over the
year. In a few weeks, you will present your company’s financial strategy to some key investors. To begin creating your strategy, you need to consider and record all the costs associated with
operating your business. You have decided to use the job order costing system.
Prompt
Use the given operational costs in the Milestone One Operational Costs Data Appendix Word Document to complete the first two tabs, “Cost Classification” and “Variable and Fixed Costs,” in
the Project Workbook Spreadsheet.
Specifically, you must address the following rubric criteria:
Cost Classification. Accurately classify all your costs in the “Cost Classification” tab of your workbook.
Identify direct material, direct labor, overhead, and period costs. (Note: Fixed and variable costs have been classified for you.)
Variable and Fixed Costs. Complete the “Variable and Fixed Costs” tab of your workbook. (Note: Some costs are provided for you. Fill in only the missing costs.)
Determine your total variable cost per unit and the total fixed costs for each product. Show your work using calculations to the side of the table or using appropriate formulas in the
table.
What to Submit
Submit the Project Workbook with the “Cost Classification” and “Fixed and Variable Costs” tabs completed. This file should be completed and submitted using Microsoft Excel.
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Assignment Information
Milestone One Rubric
Criteria
Exemplary (100%)
Proficient (85%)
Needs Improvement (55%)
Not Evident (0%)
Value
Costs Classification
Classifies all costs, including
direct material, direct labor,
overhead, and period costs,
with no errors
Classifies all costs, including
direct material, direct labor,
overhead, and period costs,
with minimal errors
Classifies all costs, including
direct material, direct labor,
overhead, and period costs,
with significant errors
Does not attempt criterion
25
Variable and Fixed Costs:
Collars
Determines the per unit cost
and the fixed costs for collars,
with no errors; shows work
through calculations or
formulas
Determines the per unit cost
and the fixed costs for collars,
with minimal errors
Determines the per unit cost
and the fixed costs for collars,
with significant errors
Does not attempt criterion
25
Variable and Fixed Costs:
Leashes
Determines the per unit cost
and the fixed costs for leashes,
with no errors; shows work
through calculations or
Determines the per unit cost
and the fixed costs for leashes,
with minimal errors
Determines the per unit cost
and the fixed costs for leashes,
with significant errors
Does not attempt criterion
25
Determines the per unit cost
and the fixed costs for
Determines the per unit cost
and the fixed costs for
Determines the per unit cost
and the fixed costs for
Does not attempt criterion
25
harnesses, with no errors;
shows work through
calculations or formulas
harnesses, with minimal errors
harnesses, with significant
errors
formulas
Variable and Fixed Costs:
Harnesses
Total:
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Milestone One – Cost Classification
INSTRUCTIONS:
Putting an X in the appropriate spot, classify the costs as: Direct Material, Direct Labor, Overhead, or Period Costs.
The Fixed and Variable cost classifications have been provided for you.
Item/Cost
Direct
Material
Direct
Labor
Overhead
Period Costs
Fixed
Variable
Salary – Collar maker
x
x
Salary – Leash maker
x
x
Salary – Harness maker
x
x
Salary – Receptionist
x
High-tensile strength nylon webbing
x
x
Polyester/nylon ribbons
x
x
Buckles made of cast hardware
x
x
x
Depreciation on sewing machines
x
Rent
x
Utilities and insurance
Scissors, thread, and cording
x
Price tags
x
Office supplies
x
x
x
x
x
x
Other business equipment
x
Loan payment
Salary to self
x
x
x
ACC202 – MANAGERIAL ACCOUNTING
H
Milestone One – Variable and Fixed Costs
Collars
Item
Variable Cost/Item
Item
High-tensile strength nylon webbing
Polyester/nylon ribbons
Buckles made of cast hardware
Price tags
$
Collar maker’s salary (monthly)
Depreciation on sewing machines
Rent
Utilities and insurance
Scissors, thread, and cording
Loan payment
Salary to self
4.00
Total Variable Costs per Collar
Fixed Costs
$
2,773.33
$
$
183.33
166.67
Total Fixed Costs
Leashes
Item
Variable Cost/Item
Item
Fixed Costs
High-tensile strength nylon webbing
Polyester/nylon ribbons
Buckles made of cast hardware
Price tags
Leash maker’s salary (monthly)
Depreciation on sewing machines
Rent
Utilities and insurance
Scissors, thread, and cording
Loan payment
Salary to self
Total Variable Costs per Leash
Total Fixed Costs
$
–
Harnesses
Item
High-tensile strength nylon webbing
Polyester/nylon ribbons
Buckles made of cast hardware
Price tags
Total Variable Costs per Harness
Variable Cost/Item
Item
Fixed Costs
Harness maker’s salary
Depreciation on sewing machines
Rent
Utilities and insurance
Scissors, thread, and cording
Loan
Salary to self
Total Fixed Costs
ACC202 – MANAGERIAL ACCOUNTING
H
Milestone Two – Contribution Margin Analysis
COLLARS
LEASHES
Sales Price per Unit
Variable Cost per Unit
Contribution Margin
ACC202 – MANAGERIAL ACCOUNTING
HARNESSES
H
Milestone Two – Break-Even Analysis
COLLARS
LEASHES
HARNESSES
Sales Price
$
–
$
–
$
–
Fixed Costs
$
–
$
–
$
–
Contribution Margin
$
–
$
–
$
–
Break-Even Units (round up)
Target Profit
–
$
Break-Even Units (round up)
Target Profit
Break-Even Units (round up)
–
300.00
$
–
$
$
–
500.00
–
400.00
–
$
600.00
–
ACC202 – MANAGERIAL ACCOUNTING
500.00
–
$
650.00
–
H
Milestone Three – Statement of Cost of Goods Sold
Beginning Work in Process Inventory
Direct Materials:
Materials: Beginning
Add: Purchases for month of January
$
–
0
Materials available for use
Deduct: Ending materials
Materials Used
Direct Labor
Overhead
Total Costs
Deduct: Ending Work in Process Inventory
0
Cost of Goods Sold
ACC202 – MANAGERIAL ACCOUNTING
Milestone Three – Income Statement
Revenue:
Collars
Leashes
Harnesses
$
–
Total Revenue:
Cost of goods sold
Gross profit
$
$
–
Total Expenses
$
–
Net Income/Loss
$
–
Expenses:
General and administrative salaries
Office supplies
Other business equipment
$
ACC202 – MANAGERIAL ACCOUNTING
–
Milestone Three – Variance Analysis
Data for Variance Analysis:
Budgeted
(Standard)
Hours/Qty
Budgeted
(Standard)
Rate
Actual
Hours/Qty
Actual
Rate
Variance
Favorable/
Unfavorable
Labor
Materials
Variances for Collar Sales
Direct Labor Time Variance
(Actual Hours – Standard Hours) x Standard Rate
$
–
Direct Labor Rate Variance
(Actual Rate – Standard Rate) x Actual Hours
$
–
Direct Materials Quantity/Efficiency Variance
(Actual Quantity – Standard Quantity) x Standard Price
$
–
Direct Materials Price Variance
(Actual Price – Standard Price) x Actual Quantity
$
–
ACC202 – MANAGERIAL ACCOUNTING
ACC 202 Milestone Three: Actual Costs and Revenue Data Appendix
At the end of the first month of opening your business, you calculate the actual operating costs of the
business and the income you earned. You also notice and document the difference in what you
budgeted for certain materials and labor against the actual amounts you spent on the same.
For your statement of cost of goods sold, use the following data regarding the actual costs incurred by
the business over the past month:
•
Materials purchased: $20,000
o Consumed 80% of the purchased materials
• Direct labor: $8,493
• Overhead costs: $3,765
Note: Assume that the beginning materials and ending work in process are zero for the month.
Use the following revenue and cost information for the income statement. Note that the revenue you
use will depend on the pricing level options you chose in Milestone Two. Also, assume that after
accounting for weekends and other holidays, there were 20 business days in the first month of
operation. For example, if you chose a sales price of $20 per collar, the actual number of collars sold in
the month was 33 per day or 33 x 20 = 660 per month.
Established Sales
Price
Collars
$20
$24
$28
Leashes
$22
$26
$30
Harnesses
$25
$30
$35
Number of Items Sold per
Day
33
28
23
28
23
18
25
22
20
The other costs incurred by the business include:
•
•
•
General and administrative salaries
o Receptionist: $1,950
Office supplies: $200
Other business equipment: $150
1
Variance
At the end of the month, you find that the labor and materials spent on manufacturing collars was
different from what you estimated:
•
•
•
•
The collar maker had to work nine hours a day instead of eight due to an increased demand for
collars.
Because of the increased demand, the hourly rate you paid your employee for making the
collars increased to $16.50.
An increase in the cost of raw material led the direct material cost per collar to increase to $10.
However, you also made and sold 60 more collars than you expected to sell in the month.
You now need to determine the variance in the materials and labor cost from what you estimated in
Milestone Two based on the market research data.
2
H
Milestone One – Cost Classification
INSTRUCTIONS:
Putting an X in the appropriate spot, classify the costs as: Direct Material, Direct Labor, Overhead, or Period Costs.
The Fixed and Variable cost classifications have been provided for you.
Item/Cost
Direct
Material
Direct
Labor
Overhead
Period Costs
Fixed
Variable
Salary – Collar maker
x
x
Salary – Leash maker
x
x
Salary – Harness maker
x
x
Salary – Receptionist
x
High-tensile strength nylon webbing
x
x
Polyester/nylon ribbons
x
x
Buckles made of cast hardware
x
x
x
Depreciation on sewing machines
x
Rent
x
Utilities and insurance
Scissors, thread, and cording
x
Price tags
x
Office supplies
x
x
x
x
x
x
Other business equipment
x
Loan payment
Salary to self
x
x
x
ACC202 – MANAGERIAL ACCOUNTING
H
Milestone One – Variable and Fixed Costs
Collars
Item
Variable Cost/Item
Item
High-tensile strength nylon webbing
Polyester/nylon ribbons
Buckles made of cast hardware
Price tags
$
Collar maker’s salary (monthly)
Depreciation on sewing machines
Rent
Utilities and insurance
Scissors, thread, and cording
Loan payment
Salary to self
4,00
Total Variable Costs per Collar
Fixed Costs
$
2.773,33
$
$
183,33
166,67
Total Fixed Costs
Leashes
Item
Variable Cost/Item
Item
Fixed Costs
High-tensile strength nylon webbing
Polyester/nylon ribbons
Buckles made of cast hardware
Price tags
Leash maker’s salary (monthly)
Depreciation on sewing machines
Rent
Utilities and insurance
Scissors, thread, and cording
Loan payment
Salary to self
Total Variable Costs per Leash
Total Fixed Costs
$
–
Harnesses
Item
High-tensile strength nylon webbing
Polyester/nylon ribbons
Buckles made of cast hardware
Price tags
Total Variable Costs per Harness
Variable Cost/Item
Item
Fixed Costs
Harness maker’s salary
Depreciation on sewing machines
Rent
Utilities and insurance
Scissors, thread, and cording
Loan
Salary to self
Total Fixed Costs
ACC202 – MANAGERIAL ACCOUNTING
H
Milestone Two – Contribution Margin Analysis
COLLARS
LEASHES
Sales Price per Unit
Variable Cost per Unit
Contribution Margin
ACC202 – MANAGERIAL ACCOUNTING
HARNESSES
H
Milestone Two – Break-Even Analysis
COLLARS
LEASHES
HARNESSES
Sales Price
$
–
$
–
$
–
Fixed Costs
$
–
$
–
$
–
Contribution Margin
$
–
$
–
$
–
Break-Even Units (round up)
Target Profit
–
$
Break-Even Units (round up)
Target Profit
Break-Even Units (round up)
–
300,00
$
–
$
$
–
500,00
–
400,00
–
$
600,00
–
ACC202 – MANAGERIAL ACCOUNTING
500,00
–
$
650,00
–
H
Milestone Three – Statement of Cost of Goods Sold
Beginning Work in Process Inventory
Direct Materials:
Materials: Beginning
Add: Purchases for month of January
$
–
0
Materials available for use
Deduct: Ending materials
Materials Used
Direct Labor
Overhead
Total Costs
Deduct: Ending Work in Process Inventory
0
Cost of Goods Sold
ACC202 – MANAGERIAL ACCOUNTING
Milestone Three – Income Statement
Revenue:
Collars
Leashes
Harnesses
$
–
Total Revenue:
Cost of goods sold
Gross profit
$
$
–
Total Expenses
$
–
Net Income/Loss
$
–
Expenses:
General and administrative salaries
Office supplies
Other business equipment
$
ACC202 – MANAGERIAL ACCOUNTING
–
Milestone Three – Variance Analysis
Data for Variance Analysis:
Budgeted
(Standard)
Hours/Qty
Budgeted
(Standard)
Rate
Actual
Hours/Qty
Actual
Rate
Variance
Favorable/
Unfavorable
Labor
Materials
Variances for Collar Sales
Direct Labor Time Variance
(Actual Hours – Standard Hours) x Standard Rate
$
–
Direct Labor Rate Variance
(Actual Rate – Standard Rate) x Actual Hours
$
–
Direct Materials Quantity/Efficiency Variance
(Actual Quantity – Standard Quantity) x Standard Price
$
–
Direct Materials Price Variance
(Actual Price – Standard Price) x Actual Quantity
$
–
ACC202 – MANAGERIAL ACCOUNTING
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